Connecticut Parents Evaluating College Debt

student-debtDespite serving residents of the affluent state of Connecticut, most all of our college counseling clients will have to evaluate taking college loans and then dealing – or having their children – deal with college debt.

Should my child take out loans and be in debt for college?  This is both an emotional and a practical issue. Debt creates insecurity. Insecurity creates emotionality.  That’s human. But it is not helpful when making business investments and when analyzing the return on investment (ROI) related to college debt.

For the sake of this analysis, we remove all issues related to what you are willing to pay for the college experience. This comment will only be related to college cost and post college employment income. Some comments on statistical analysis will be helpful: Much like any business investment, college cost-benefit analysis is an exercise in examining probability, not certainty. Moreover, in the context of post college employment outcome for most students, the possibilities are so varied that we can simply make reasonable educated guesses regarding outcomes.

We’ll use Harvard and UCONN to discuss college debt with Harvard as a proxy for elite private schools and UCONN as a more literal example.

You will spend $150,000 more for Harvard. From a pure ROI perspective, parents have to ask whether it is worth spending an additional $150,000? It depends on the desired outcome.

If your child wants to become an investment banker?  Yes. Most investment banks do not hire UCONN grads.  Harvard is a feeder school for investment banks.  Investment bankers make enough money to pay off those loans in a couple of years.  The ROI will be extremely high.

Is it worth it from an economic perspective if your child wants to become an elementary school teacher?  No. UCONN grads are equally or close to equally likely to get hired as elementary school teachers. Regardless, even if Harvard provides an edge in gaining desirable employment in this arena, the difference in pay between elementary school teachers in different districts is too small to make the ROI worth it.

Is it worth it if your child wants to “maximize possibilities for a big career that could take him/her anywhere in the world”?  Yes. This is the more complicated but more realistic example of what parents and students face. At 18, your children and you don’t know what they really want. But if your child has big world ambitions and wants to ensure that all options are available, then, I’ll suggest taking the loans.

Is it worth it if your child will come home to work in the family business?  No.

ROI.  That’s the analytical factor to focus upon. It will help guide you towards rational college decisions.